Delete property

Delete property

It took me a while to twig to how middle-class workers are subsidizing many of the wealthy owners that they are competing against to buy a home in urban B.C.’s stratospherically expensive housing market.

When Vancouver Sun editors asked me six years ago to expand my diversity and religion beat to include more coverage of migration, I had no idea I would be compelled to peel back the layers of the loopholes some of the global rich exploit to buy houses and engage in tax avoidance in Canada.

But that’s what started happening in the summer of 2015 when I wrote a series on Richmond, where a Canadian record six out of 10 residents are born outside the country. The frustrated former mayor Greg Halsey-Brandt alerted me to one neighbourhood full of elegant homes where owners were declaring income levels lower on average than those barely surviving in Vancouver’s Downtown Eastside.

I followed up with more pieces about tens of thousands of mansion owners in Metro Vancouver’s tony neighbourhoods who were reporting earning almost no income in Canada. Richmond’s Albert Lo, then-head of the Canadian Race Relations Foundation, was among those concerned that people with expensive houses were earning most of their money outside the country and not reporting it to the B.C. and Canadian governments.

It turned out Lo was dead on. The short version of what became of my reporting on this housing and tax avoidance saga, which led some developer-friendly social commentators to accuse me of xenophobia, is that things finally changed a few years ago — after the affordability crisis grew even more drastic.

Why do upscale neighbourhoods in Metro have so many poor? “Those of us who live here know that this is nonsense. Since many of the families live in over $1-million homes. It is simply under-reporting of income that causes the problem,” says former Richmond mayor Greg Halsey-Brandt.

For some time now a small batch of informed housing scholars, immigration lawyers, journalists and politicians have been pointing to the problem of what the B.C. government now refers to as “satellite families.”

Such families migrate to Canada and buy expensive properties in Metro Vancouver, the Fraser Valley or Victoria, while the breadwinners (often referred to as “astronauts”) make virtually all their money in another country. That means their wealth is not taxed in Canada.

The B.C. NDP government is trying to address satellite families with the speculation component of its “speculation and vacancy tax,” which four out of five British Columbians supported in 2018, according to Angus Reid pollsters. Nevertheless the much-misunderstood speculation tax has been under concerted attack by the B.C. Liberals and some commentators.

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To understand the housing disadvantage that tax avoidance puts on local wage earners, the definition of foreign ownership needs first to be clarified.

It is not determined by the national citizenship of the owner, by whether they have a Canadian, Spanish or Chinese passport. As SFU public policy specialist Josh Gordon says, foreign ownership is best understood as “housing owned primarily on the basis of foreign income or wealth.”

Foreign ownership is a key factor placing upward pressure on prices in Metro Vancouver, where there is no longer a meaningful connection between local wage levels and housing costs. The city has become a legendarily attractive gateway city for migrants, a quasi-resort destination for rich people, especially those from unstable regions of the Asia-Pacific.

As Gordon puts it succinctly, “foreign ownership makes it harder for local working people to buy attractive property in a market, since they are competing with people from around the world.”

That competitive pressure is compounded when satellite families — especially the estimated 200,000 spouses, children and relatives that UBC geographer David Ley says have arrived in Metro Vancouver through investor immigrant programs — don’t pay much, or any, tax in Canada.

“Our current tax system subsidizes foreign ownership,” Gordon says in a recent paper, which explains the little-understood aspect of satellite families. It’s why the speculation tax form requires property owners to declare if they make more than half of their income outside Canada.

The unfair subsidy to foreign ownership arises because local wage earners must direct a substantial portion of their pay cheques to finance roads, education, health care, transit, firefighters, police. It’s “part of the social contract in Canadian society,” Gordon says, which makes the country a place of opportunity for all.

“(But) now imagine that a wealthy person could access or enjoy all of the same social services and public amenities as the high-earning local individual, but not pay income taxes. That would be a huge advantage in the housing market, and a great bargain. Unfortunately, it’s not hypothetical,” Gordon says.

“If you earn your income abroad and spend most of your time out of the country, you can file with the Canadian Revenue Agency as a non-tax resident in certain cases, even if your family resides here. … In the meantime your family enjoys the public amenities and social services year-round. This is the so-called ‘satellite family’ situation.”

Largely because of the satellite phenomenon, the Conservative government closed the long-standing immigrant-investor program in 2014. It had recognized the millionaire migrants who had essentially bought their Canadian passport were on average only paying $1,400 a year in Canadian income taxes.

The continuing problem, however, is that provincial versions of the investor program, especially the one in Quebec, to this day funnel thousands more wealthy new arrivals into Metro Vancouver, where Statistics Canada researchers recently found the average price of their homes is more than $3.2 million.

In addition to the speculation tax, B.C. Finance Minister Carole James last week began creating another tool to respond to what renowned Vancouver real-estate analyst Richard Wozny described as the “freeloader” phenomenon associated with low-tax paying families who buy stylish B.C. houses and condominiums.

James’ “beneficial ownership registry” aims to publish the names of the people who actually own B.C. property, even though their true identities are disguised through corporations, trusts and numbered companies. The registry is primarily an attempt to combat money laundering, but it should also help shine light on previously unnamed satellite B.C. homeowners who pay little or no taxes in Canada.

Even an outright ban on foreign nationals buying B.C. property would not be as effective as the speculation tax, Gordon believes. That’s because such a ban “would not address the more influential phenomenon of wealth migration, where wealthy people arrive through various immigration streams and yet remain disconnected from the local economy, since they continue to earn abroad.”

Despite its many bashers, the reality is the speculation tax appears to be working. The frenzied bidding wars are dying off. Prices of houses and condos in B.C. cities have moderated. They’re still high, but prudent people are hoping for a “soft landing” rather than a crash.

While other factors are always at work in real estate, making sure satellite families play the game on a level playing field with local Canadian wage earners is crucial to bringing stability, and sanity, to housing.

MORE RELATED: Canada’s public guardians have failed Metro Vancouverites

The Speculation and Vacancy Tax: An Explainer, by Josh Gordon

dtodd@postmedia.com

@douglastodd

LISTEN: Development manager at Aragon Properties Ltd. Luke Ramsay, Vice President of the B.C. chapter of the Canadian Mortgage Broker’s Association Rob Regan-Pollock, CEO and president of Sotheby’s Canada Brad Henderson, and UBC Sauder School of Business professor Tom Davidoff join host Stuart McNish to discuss the impact of federal interventions in the real estate market for first-time homebuyers.